Z`bar politics, oil exploration and foreign investments

By Nimi Mweta

22nd April 2012

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One feature of the Tanzanian economy that has foreign investors on their feet, outside gold mining where the zone is nearly cordoned off already, is uranium – but then its scale and potential areas are few, looking like just another rare mineral.

Another substantial area where the field is much wider and exciting is gas exploration, while oil per se looks nearly out of reach as no one has specifically struck oil until now, but plenty of successful gas strikes have been made on the Tanzanian coastline.

Yet a snag is prevalent in this activity, of a legal limbo in relation to doing such exploration in Zanzibar, and still less to figure out what agreements shall be entered into in case gas or worse, oil findings are later made.

This issue is one of the more intractable aspects of continuous negotiations on the part of the two governments concerning squabbles and misunderstandings in the Union, which traditionally has a fully fledged ministry of Union Affairs.

The rocky partnership between the two parts of Tanzania is at times looking like it will be torn apart to oil discovery, as nothing will stop the House of Representatives from claiming full ownership and custody of proceeds from any such discovery.

The reps recognise the structures of the Union in areas where benefits of separating a specific field from matters doesn't quite make a difference in terms of revenue or is convenient administratively, and oil isn't one of those.

Many companies are happier seeking gas licences in other parts of the country, especially the coastline where prospects seem to be higher than in most other areas, but it appears that geological formations of a gas bearing character are scattered around the major lakes.

In Uganda oil findings were located around Lake Albert, while in Kenya it is Lake Turkana neighbourhoods – and since there is plenty of oil in nearby South Sudan, there is no reason why only gas should be available either in northern Uganda or Kenya. Exploration in Tanzania also focuses on lake areas like Tanganyika and Nyasa as they are squarely in a Rift Valley zone, and the coastline, but many firms hesitate to explore in Isles waters.

Business analysts especially in chambers of commerce and the Tanzania Petroleum Development Corporation (TPDC) have often raised the point that political attitudes in Zanzibar are the main cause of frequent withdrawals of oil exploration offers on Zanzibar coastline and waters, as in the case of a finding, companies realize that intractable legal wrangles would ensue, making routine work impossible to assure, especially if such assets will be under Union government revenue administration.

Chances are that sabotage could even start; radicals in Zanzibar don't feel part of the Union and oil is top issue there. In other words there is both a Biafra-like phenomenon with the Union generally, but if one introduces oil, the combination leads to be breakup of the country, which would resolve the legal problem with regard to investments in oil or gas.

Yet it isn't easy to reach a settlement either about withdrawal of oil and gas from Union affairs, which is being demanded by the Isles House, in which case exploration fails to put the necessary effort in that part of the coastline.

Gas exploration requires drilling of test wells with considerable frequently as rock formations aren't fully contiguous from one area to another.

TPDC officials point out that when it relates to exploring gas or oil in Zanzibar or within its territorial waters, Zanzibar authorities want a separate agreement with investors, whereas the latter want a single agreement covering Tanzania as a whole. It is hard to see how this contention can be resolved since natural resources are non-Union matters, and as oil exploration requires a contract covering the exploration and exploitation phase, this investor preference clashes with constitutional prerogatives which are meant to be utilised.

Logically therefore Zanzibar is within its legal privileges in relation to non-Union matters, but the specific application of such privileges need to conform to unity of law in relation to sovereignty, in which case oil exploration and exploitation pervades ‘local institutionality.’

Despite that oil exploration has been active in Zanzibar since 1997, nothing has so far been said about a successful find, which is hard to say if it reflects proper geological findings or it is a hedging position where a company retains rights to an exploration area, but lets it lie fallow.

In case such a firm has a firm base on the Mainland and is already tied up in terms of taxes with Union revenue authorities, issues of its specific liabilities to Isles authorities could take the form of 'corporate social responsibility' in like manner as gold mining firms contribute fixed amounts to local governments. Obviously some hedging would be expected in this case as Isles can't be figured in similar manner, but a royalty claim.

In the final analysis it can't be said that there is such a vacuum in the legal standing in relation to exploration as to actually hinder it from taking place in Isles waters or coastal zone, but companies may look askance at a situation where starting gas exploitation sparks protests if it obviates Isles control.

In other words the problem is less what the Union authorities are doing in that area, what sort of legal directives they have given to exploration firms as to the final or relevant legal regime but companies taking a hedge on the situation.

It would helpful if any Zanzibar findings are only an auxiliary to other stable exploitation area on the Mainland coastline, as in that case Isles prerogatives would be narrower.

Examining the problem from a political point of view in relation to progress made in tackling 'queries of the Union,' it must be said that little progress has been made since the matter came up in 1997, as TPDC started entering into the gas and oil exploration field.

What seems likely to take place is sorting out at the level of company obligations, in which case Isles authorities be compelled to comply with a regime that is acceptable to foreign companies, as in that case they will amenable to compromise and 'best practices' reference, while discussions between the two governments end up being stuck, as the Isles want oil out of Union matters.

That means it is companies which are likely to bring up the matter in a practical way once there is a specific finding, but Isles restlessness about the issue risks putting off such a day for a while, if marketable gas strikes become numerous enough on the Mainland coastline.

That is why Isles political advisers have to learn the basics of global market operations that the sort of climate that is business friendly and thus permitting attracting of foreign investors is inimical with the rentier attitude and hostility tied up with feudal regimes and nationalistic militarism, violence, etc.

If the political culture of a country is not yet meek, if people in Zanzibar stick with rabble-rousers against Mainlanders, they should realise that without correct treatment of Mainlanders one cannot convince an investor that he will, in turn, be properly treated, unlike the Mainlander.

The rule of law is supposed to be universal, and regimes or political parties be committed to supervising that laws are being observed, thus the 'ash' of political ferment in relation to gas or oil must cool down first for investments to come.